Use RRSP’s to Help You Buy a New Home or Better Education

Use RRSP’s to Help You Buy a New Home or Better Education

RRSP’s have some cool tools to help you buy your first home or help towards paying for a post-secondary education. The programs are called: the Home Buyer’s Plan (HBP for short) and the Lifelong Learning Plan (LLP for short). Here is how they work:

Home Buyer’s Plan

If you are a first-time homebuyer, you may qualify for the HBP. To find out what conditions are needed to be met for this program, please consult your financial advisor or go to the Canada Revenue Agency website: www.cra.gc.ca and type in Home Buyer’s Plan in the search tool for more details.

Here is a basic overview – you may withdraw up to $20,000 of your RRSP’s (if you have already contributed that much) for the purposes of buying your first home. Once you complete all the necessary paperwork and make the withdrawal from your RRSP, you must then repay the $20,000 over a period of 15 years, starting two years after making the HBP withdrawal. Essentially speaking, you are giving yourself a “loan” from your own retirement savings.

Advantages – A home is generally an appreciating asset over a long period of time, so using your own money from an RRSP is, generally speaking, a sound investment. Such a method of putting down money for a home also reduces mortgage interest over its lifetime and can also help lower mortgage payments because the HBP withdrawal is directly applied to the principle on the home as part of the down payment.

Disadvantages – Withdrawing money from your RRSP will slow the pace of growth inside your RRSP, hence reducing the power of compound interest within your RRSP product. However, this is offset by the fact you are investing in an appreciating asset (historically speaking), so the gain in the value of your home will offset the compound interest lost in the RRSP.

If you are in the market to buy your first home, always consult your financial advisor to see if a Home Buyer’s Plan is a good fit for you.

Lifelong Learning Plan

If you have an RRSP in place and decide to go back to post-secondary school, the LLP might be a good fit for you. LLP’s have different qualifications and requirements, so please check with your financial advisor or go to the Canada Revenue Agency website: www.cra.gc.ca for the requirements of an LLP. You may withdraw up to $10,000 for post-secondary education and have 10 years to repay the LLP loan back to your RRSP after the qualifying period ends.

Advantages – An LLP will help you save on student loan interest because, like the HBP, you have put your own money down. This results in smaller student loans and faster repayments because you will be paying less back.

Disadvantages – Like the HBP, you can slow the pace of the power of compound interest resulting from the withdrawal from your RRSP. However, this can be minimized by the opportunity presented in a better paying job or career as a result of a higher education. This, of course, is dependent on whether the new career opportunity commands a higher salary than your previous job or career.

If you believe an LLP can be part of your career-building opportunity, please consult your financial advisor, and do your research. The Canada Revenue Agency website is an excellent source of information regarding the rules, regulations, and repayment schedules pertaining to an LLP.

Leave a Reply